Two shops were raided under forgery laws after selling novelty bank notes with pictures of cartoon characters.
The notes, which were taken from shops in Blackburn and Darwen, showed pictures of cartoons, Dr Who and a football team - instead of the Queen. But trading standards officials in Lancashire were concerned they could have been mistaken for real money.
Bank of England rules state that written permission is needed "for all possible reproductions".
Officials seized hundreds of the notes, which were in £5, £10, £20 and £50 denominations and were being sold for £1 for four notes.
The Queen's head had been replaced with a variety of pictures from Dr Who, Star Wars, Winnie the Pooh and Barbie. But, although they were meant as fun items, the council is not treating them as a joke.
Councillor John Slater, Blackburn and Darwen Borough Council, executive member for citizens and consumer rights, said: "Part of the Forgery and Counterfeiting Act makes it a criminal offence to reproduce banknotes in any way, without the written consent of the Bank of England.
"These items were clearly intended as novelties and the traders bought them in good faith purely as fun products, not realising they were breaking the law.
"We have explained the law to them, alerted the police and will destroy the seized notes. I'd urge people not to buy novelty banknotes at all," he added.
Trading standards officers will now investigate the source of the notes and decide what further action to take.